Sunday, August 7, 2011

Triple-A Rating Downgrade


Image credit: http://blog.getliberty.org/default.asp?display=2593


The above depicts the distressed imbroglio that Washington find themselves in but Malaysians should not smirk. It can refer to our Malaysia too - we are also in deep shit.

It must have been a humongous embarrassment to Barack Obama that Standard & Poor's took the unprecedented step to strip the US government's credit-worthiness from an AAA rating to AA+ with a negative outlook, citing Washington's dysfunction which led the country to the brink of a debt collapse this week. And if this is not shocking enough, this downgrade could spook global markets and raise borrowing costs for the long-suffering US consumers.


Most countries would give a measured response to the US debacle but I found it refreshing to read that Chinese state media had hit out at the US yesterday after that country's downgrade, saying the world's largest economy needed to cure their "addiction" to debt (New Sunday Times, August 07, 2011, p 38). The advice is pertinent because the said country must re-establish the commonsense principle that one should live within one's means. But Xinhua news agency's concern for the US is not innocent. China is the world's largest creditor nation - the country holds about $2 trillion worth of US-denominated securities - and the latter in ticking off the US is not shy to demand Washington address their structural debt problems and safeguard Chinese dollar assets.

Still, the two other members of the US ratings oligopoly, Moody’s Investors Service and Fitch Ratings, earlier in the week reconfirmed their top rating on US debt.

According to columnist David Olive of Canada's The Toronto Star today, just 16 of the 126 nations whose debt is rated by S&P earn the coveted triple-A rating. Malaysia - in case you are wondering - is only rated an A as at July 27, 2011 (Webpage http://biz.thestar.com.my/news/story.asp?file=/2011/8/4/business/9231687&sec=business, posted August 04, 2011).

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